This article didn’t make much of a splash in the news as it looked like a simple product PR blah, but for most people who follow personal finance developments, it’s a sign banks are (finally) admitting Filipinos are tired of plain-vanilla deposit products and are looking for better returns on their money.
The article talks about AIG Philam Savings’ 5-year long-term negotiable certificates of deposit launched Wednesday.
Pulitika, Kalakalan, ATBP. pointed out that UITFs are declining in volume because of LTNCDs. There must be a huge volume of cash being shifted, because as of now, only two universal banks and one thrift bank has issued LTNCDs – BDO, BPI and AIG Philam Savings Bank.
AIG Philam is offering P3 billion worth of LTNCDs over a 12-month period, P1 billion in July. The bank will pay interest quarterly, unlike previous LTNCD offers. This offering will be tax-free if held until maturity or until 2012. Interest is fixed at 7.25% per annum.
LTNCDs are bond-deposit hybrids, so they are less risky than stocks. They are guaranteed by the PDIC up to P250,000 per depositor. They are negotiable, meaning they can be sold before maturity but once that’s done, goodbye favorable tax treatment.
At 7.25% per annum, AIG Philam’s LTNCD (only banks will name a product that way!) gives slightly higher returns compared with time deposits
The 5-year Retail Treasury Bond gives 7.125%, so there’s not much difference there. By the way, the Bureau of Treasury’s public offering of RTBs close on Monday.
All told, you don’t need to be a rocket scientist to know that LTNCDs may deserve a “good” rating and it could even be “very good” depending on the issuer. But “superior”? Not really.
July 28th, 2007 at 8:43 pm
for the Tax free part, that is common to all CTD with 5 or more yrs maturity…
I invested last year with PNB’s Tier 2 and i got 10% p.a interest payable quarterly and callable after 5 years (10 yrs term) goodthing it is toppable of 100k if your already an investor of thier Tier ( I think its a subordinate global notes ) downside is 1M yung minimum nila…..
July 28th, 2007 at 6:29 am
what are the LTNCD rates of BPI and BDO?
July 27th, 2007 at 10:51 pm
Hi Salve–
Pls explain further how a “good” or “very good” rating depends on the issuer. And what do u think makes a good or superior rating?
In reaction to ur article above, I believe LTNCDs & RTBs serve their purpose well for those who are already on the pay-out or pension phase (retirement) & depend on interest income for their monthly budget. There are a lot of retirees out there who are scouting for a safe investment instrument which could provide them with the highest regular income that is guaranteed. In other words, their investment objectives are preservation of capital & regular income, not capital growth. Their placements were badly hurt when their CTFs where replaced by marked-to-market UITFs & when interest rates of their CTDs declined over the years. And their investible fund is not really that huge to allow them to invest in higher-yielding bonds.